Business Valuation Blog | Understanding Buying / Selling a Company

What Happens During a Financial Services Business Appraisal?

Posted by Business Valuation Specialists LLC on Mar 16, 2020 8:00:00 AM

business documents on office table with smart phone and laptop computer and graph financial with social network diagram and three colleagues discussing data in the background

When you work in financial services, you know what a lot of things are worth. But do you know the real value of your business? A financial services business appraisal can provide you with a lot of information about your company that makes it easier to make improvements to your bottom line, have a strong starting point for sale negotiations or update your books to reflect accurate values. But what happens during the process and what kind of information do you need to have available for the business valuation specialist who handling your company's valuation? Here's a quick look at the process to help you get started.

What Happens During a Financial Services Business Appraisal?

To start, your business valuation specialist will want to know the basics of your business, such as annual income, number of employees, if there are any other branches of the business that will be included, your assets and other basic information. Once they have that information, they'll request specific financial statements and other documentation to help calculate the value of the business. After they've had a chance to study these documents, they may ask additional questions, such as whether the business has had any unusual transactions that may skew the future income of the company, such as the year that you had to replace all of the office computers because of the transformer that blew out down the street or the year that you had a huge contract come in that doubled your usual income.

Once the appraiser has this information, they'll start to calculate value. If you did have unusual transactions, the appraiser may create normalized financial statements that prevent these transactions from causing a poor calculation further into the report. They'll look at your company to see where it's strong and where it needs some improvements. Are you making a lot of innovations and seeing strong growth because of your product development process or are you simply going along with the rest of the crowd?

Then they'll look at your competitors and determine whether they are growing or shrinking and the impact that can have on your business' value. Next, your industry as a whole will be considered and determined whether it's growing or contracting, which can impact your business as a whole. The appraiser will look at similar businesses that have sold recently that are similar to your business and then calculate how that sale price can impact your company's value. They'll consider how many transactions or how much income that business has and then adjust it to fit your company, adjusting the sale price accordingly. Once they've finished looking at your entire company, they'll write up your company's value in a comprehensive report.

By having a financial services business appraisal performed on your company, you can get a much better grasp on it's overall value, strengths and shortcomings. But this can only happen when the appraisal is performed by an experienced independent third party who doesn't have an interest in the outcome of the valuation. Working with an accredited business valuation specialist ensures that you will not only receive an independent opinion on your company's value, but that the value will be calculated using tested methodologies that will hold up well in legal, financial, tax and insurance circles.

Topics: Financial Services Business Valuation